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Dividend reductions, the timing of dividend payments and information content

Author Info

  • Balachandran, Balasingham
  • Krishnamurti, Chandrasekhar
  • Theobald, Michael
  • Vidanapathirana, Berty

Abstract

Australian companies pay dividends semi-annually with smaller “interim” payments and larger “final” payments. Interim dividends are declared and paid within a less full information environment than final dividends. We analyze the interactions between the timing of dividends and their information content, controlling for share repurchase and tax effects. Dividend reductions that are not associated with share repurchases are statistically significantly related to future abnormal earnings and provide strong support for the information content of dividend reductions. The percentage of dividend reduction is stronger for interim than for final dividend reductions. The market reaction is negatively related to the reduction in imputation tax credit and reacts more aggressively and negatively to interim as compared to final dividend reductions.

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Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 18 (2012)
Issue (Month): 5 ()
Pages: 1232-1247

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Handle: RePEc:eee:corfin:v:18:y:2012:i:5:p:1232-1247
Contact details of provider: Web page: http://www.elsevier.com/locate/jcorpfin

Keywords: Price reactions; Australia; Dividend reductions; Information content; Franked and unfranked; Interim and final;

Find related papers by JEL classification:

  • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
  • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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  1. Franklin Allen & Roni Michaely, 2002. "Payout Policy," Center for Financial Institutions Working Papers 01-21, Wharton School Center for Financial Institutions, University of Pennsylvania.
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  2. Brav, Alon & Graham, John R. & Harvey, Campbell R. & Michaely, Roni, 2005. "Payout policy in the 21st century," Journal of Financial Economics, Elsevier, vol. 77(3), pages 483-527, September.
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Cited by:

  1. Amin, Abu S. & Dutta, Shantanu & Saadi, Samir & Vora, Premal P., 2015. "Institutional shareholding and information content of dividend surprises: Re-examining the dynamics in dividend-reappearance era," Journal of Corporate Finance, Elsevier, vol. 31(C), pages 152-170.
  2. Scott Walker, 2015. "Repeated Dividend Increases: A Collection of Four Essays," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 17.

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